You start a load of laundry and head down the road for a neighborhood barbeque.  Upon returning, you find water all over your laundry room and into your carpeted hallway.

Regardless what happened or why, most home insurance policies are going to pay for the resulting damage, but not necessarily to repair or replace the washer depending on what caused the issue.

So, you call a water restoration company to come out and begin the process of drying out what they can and giving an estimate for what it’s going to cost to repair what can be repaired and replace what needs to be replaced.  You have contacted your insurance agent and the company’s adjuster has been out to access the damage and review the estimate to get your home back to the same condition it was in before the washer mishap.

You think all is going well and are happy to see a check from the insurance company within a couple of weeks arrive in your mail.  Upon opening the check however, you are confused and maybe even upset that the amount of the check is not enough to pay for the work that is already in process.  What is going on here?

Unfortunately, sometimes adjusters may not clearly explain the claims process to our clients, or perhaps the client and adjuster simply don’t communicate very well, or perhaps even the client is just so rushed during this whole process that they don’t recall the conversation.  Regardless the reason, it’s important for clients to understand how property insurance works in these situations.

Home insurance policies are bound to replace with like kind and quality.  The insured is required however, in order to access the ‘replacement cost’ of a policy, to actually replace the items and or complete the work.  The first check is for the actual cash value, or depreciated value of the item or work.  Once the item is replaced or the work done, the invoice is sent in and then the insured is sent the difference between actual cash value and replacement cost to complete the transaction.

Why do companies do this?  Why not just pay a client up front, one time for everything?  It seems it would save money in fact.  One process, one check, one mailing.

If, however, that was how replacement cost worked, what would prevent a client from never doing the work or replacing the item?  If an insurance company pays a client for a new floor, and they decide instead to do the work themselves and buy less than quality materials, the chances for the insurance company to have to pay another claim due to lesser quality work or materials, is greater.

One of our companies for years would pay immediately for the replacement of extensively damaged roofs from storms; and some clients took advantage of this; sometimes getting cheaper estimates from not so reputable firms or doing the work themselves and pocketing the difference.  Whenever you have a situation where people can ‘profit’ from insurance claims, it’s not a good scenario because that causes higher premiums for all of us in the long run.

At Cardinal Insurance Group, we are committed to educating clients to make the decisions they believe are best for their families and their insurance budget.  If you would like assistance with any of your personal, business or life insurance needs, we are simply a phone call, email, text or appointment away.